Canada's fiscal advantage

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Canada's national deficit, as a percentage of revenue, is only 38 per cent of the U.S. figure.

For decades, many people likely thought the Canadian government and the provinces were less able to manage their finances than their big U.S. counterparts.

The 2008-09 recession, however, has overturned the notion that American jurisdictions are more fiscally responsible.

During the downturn, U.S. governments saw their revenue collapse and spending soar, leading to huge budgetary shortfalls that will persist for years.

New figures released by the National Conference of State Legislatures, a Washington-based organization that provides research for the 50 U.S. state legislatures, shows just how bad the fiscal situation is for U.S. states and the Obama administration.

National snapshot

Generally, U.S. states and the government in Washington, D.C., face budgetary shortfalls that are more significant in terms of absolute dollars and in their ability to quickly reduce the red ink.

Take a look at the two federal governments.

2010-11

Deficit

% of revenue

Canada

$49.2 billion

21

U.S.

$1.34 trillion US

55

Sources: Congressional Budget Office, TD Economics

The U.S. Congressional Budget Office said the 2010-11 federal deficit will hit $1.34 trillion US, or a hefty 55 per cent of Washington's projected revenue for the same year.

Ottawa, by contrast, expects to post a budget shortfall in the range of $49 billion Cdn, or 21 per cent of the projected federal revenue for the year.

That makes Canada's national deficit, as a percentage of revenue, only 38 per cent of the U.S. figure.

Poorest performers

The story is roughly the same when the weakest U.S. states are compared with ailing Canadian provinces.

Taking top spots in terms of relative deficits among U.S. states are Illinois and Nevada, which have projected deficits for the coming fiscal year equal to 45 per cent of the revenue of those two jurisdictions.

By contrast, Ontario is the worst-performing province with a deficit of $19.7 billion Cdn. But Ontario's shortfall represents only 19 per cent of its revenue base, less than half of that of Illinois and Nevada.

5 worst states

Deficit ($US)

% of general fund

Illinois

$12.5B

45%

Nevada

$1.81B

45

Massachusetts

$2.75B

41

New Jersey

$11B

33

Arizona

$3B

30

Source: National Association of State Legislatures

5 worst provinces

Deficit ($Cdn)

% of revenue

Ontario

$19.7B

18%

Alberta

$4.75B

14

New Brunswick

$0.75B

10

Quebec

$5.56B

8.6

P.E.I. (2009-10)

$85M

5.9

Source: TD Economics

Similarly, Canada's provinces in the best financial shape also trump their American counterparts, although the difference is not as stark as for the poorer performers.

For example, considering only states expected to post deficits, Ohio faces a shortfall that equals 2.2 per cent of its potential revenue.

4 best states

Deficit ($US)

% of general fund

Ohio

$566M

2.2%

Kentucky

$395M

4.5

Nebraska

$167M

4.7

West Virginia

$224M

5.0

Source: National Association of State Legislatures

5 best provinces

Deficit ($Cdn)

% of revenue

Saskatchewan

$20M surplus

-

Nova Scotia

$0.22B

2.7%

Newfoundland

$0.19B

2.9

Manitoba

$0.55B

4.3

British Columbia

$1.72B

4.4

Source: TD Economics

In Canada, Nova Scotia is the province with the lowest anticipated deficit as a percentage of revenue, at 2.7 per cent of cash flows.

The four best-performing provinces face an average deficit equal to 3.6 per cent of revenue, slightly smaller than that of the corresponding U.S. states, 4.1 per cent.

Only one province — Saskatchewan — is projected to pop out a fiscal surplus in the 2010-11 fiscal year. In contrast, at least five states, including Alaska, are expected to be in the black in the current year.

Corrections

A previous version of this story said Nova Scotia's projected deficit for the fiscal year was $8.39 billion. In fact, it's $222 million.